Record dividend payouts ‘won’t last’
UK DIVIDEND payouts hit a record high in the second quarter of this year, but experts warned they were being flattered by a handful of one-off payments and the weak pound.
Some £37.8bn was handed out in the three months to June, up 14.5pc and £4bn more than the previous quarterly record. Excluding special dividends, payouts were 5pc higher at £32.4bn, with half of this increase the result of exchange rate gains.
“Investors are being dazzled by eye-catching specials and exchange-rate trimmings, but the UK’S dividend clothes are starting to look a bit threadbare underneath,” said Michael Kempe, of Link Market Services, which compiled the analysis.
Among those doling out special payouts was Royal Bank of Scotland, whose 7.5p-a-share special dividend meant £1bn was paid to the Government.
“Corporate profits are under pressure and that is limiting the scope for dividend growth,” said Mr Kempe.
“The true picture for dividends this year is therefore notably weaker than a first glance might suggest.” Still, big mining firms have continued to pay big dividends.
It’s easy to see why people would rather gamble online than venture into a betting shop. Take one William Hill branch in central London. It’s a cramped, grubby affair. Scrunched up betting slips are scattered over the grey carpet, which is also peppered with chewing gum stains and goodness knows what else.
There’s a long queue blocking the way to the betting counter. But it’s the fixed-odds betting terminals (FOBTS) people are waiting for. It is not unique to Hills – it could be at any bookies.
But while betting shops are much of a muchness, William Hill, Britain’s best-known bookie has attracted the attention of the City for the wrong reasons. At the start of 2018, it boasted a stock market value of nearly £3bn, but it’s now half that sum.
It is dwarfed by the likes of Paddy Power, Betfair and GVC, the owner of Ladbrokes and Coral. Hill seems to have been left at the races. One of its biggest problems is its exposure to the UK and in particular to the high street.
With about 2,300 shops, it is the biggest single brand, according to the Gambling Commission. That figure was taken prior to the introduction of the crackdown on FOBTS. After years of political wrangling, a maximum
wager of £2 on the machines – dubbed the “crack cocaine of gambling”
– came into force at the start of April.
Overnight, shops up and down the country were rendered loss-making. KPMG estimated 3,000 shops would be at risk by 2020; putting more than 15,000 jobs on the line. Closures would be inevitable, bookies warned. William Hill has announced 700 shops will do, putting 4,500 jobs at risk.
But chief executive Philip Bowcock insists William Hill will not disappear completely: “There will continue to be a profitable high street element.”
Gambling firms have been in the crosshairs of regulators over recent years. The hope, especially for
‘We think a more responsible gambling industry will lead to less risk around further, surprise regulation and tax’
William Hill, is that officials have got most of their grievances out of their system.
Still heavily exposed to the UK market, regulatory transparency would be a much-needed dose of good news. “The major UK gambling operators have taken a clear step forward in addressing political and consumer concerns,” says Jefferies analyst James Wheatcroft. “We think a more responsible gambling industry will lead to less risk around further, surprise regulation and tax.”
The second thing weighing on the company is a historical fumble online. Digital is the future: getting your technology up to scratch is paramount.
But William Hill was late to the digital revolution. William Hill Online, a joint venture with tech gambling specialist Playtech, only started in 2008. It was marred by a tempestuous relationship. The then boss Ralph Topping bought out Playtech for £400m and promptly handed his successor James Henderson a complete hospital pass – to develop William Hill’s value in UK has halved William Hill’s digital know-how in-house, instead of enlisting outside help.
The gamble flopped. Two years later, he was abruptly quit with the then chairman Gareth Davis admitting ”online hasn’t performed how we wished”.
The experience continues to tar the perception of William Hill’s online operations. Many believe they are clunkier and less well-connected than some of their peers. Online gambling – as with online shopping – is about reducing “friction” to make it as easy as possible to place a bet.
“Our product is competitive and improving all the time,” insists Bowcock. And there’s no plan for a dramatic U-turn: William Hill will continue to develop its betting IT by itself. “If you look at the competitors… all have their own in-house IT functions,” he says.
Few argue, however, that William Hill is an unashamed outlier in its US strategy. Until last spring, sports wagering had been banned across most states for decades. But starting in New Jersey, one-by-one states have started repealing the ban.
UK bookmakers, armed with years of experience, see the US as a huge opportunity. Most larger operators have attacked the burgeoning market by pooling their resources with an established US outfit. GVC boss Kenny Alexander is unequivocal that his deal with casino giant MGM Resorts is the plum gig. “There is only one MGM, they are the biggest in the US market. I think we have done the deal that everybody else wanted to do,” he said last September. Paddy Power has merged with fantasy sports website Fanduel. Sky Bet owner Stars Group struck a deal with Rupert Murdoch’s Fox Sports.
But William Hill has gone a different way. It believes that it already has a strong enough brand in the US. It is the most established of the British raiders, having set up in Nevada in 2011.
Hill’s strategy is to work with Eldorado Resorts, handing it a 20pc slice of its US business. Critically, however, leveraging its own – rather than an American – brand. “We think that GVC is the best positioned in the market thanks to its joint venture with MGM,” wrote Berenberg analysts in January. This will allow them to own a quarter of the market by 2022, they said. Paddy Power should grab around 15pc of the industry over time. William Hill be left with around 10pc. Analysts continued: “We are still on the sidelines about William Hill. While its distribution seems fine, we believe management’s decision to use its own brand – rather than that of an established US player – could be expensive and entail sizeable start-up losses.”
Things have moved on, however. Last month Eldorado inked a £14bn deal to buy Caesars Entertainment. It’s a move that suggests Bowcock’s decision to not follow the pack could pay dividends. Wheatcroft says: “The acquisition of Caesars would, therefore, expand William Hill’s US market access.”
Naturally, the Hills chief executive agrees. “We could have done a big brand deal but we chose not to give away control. Eldorado is now acquiring Caesars, which would give us a further boost in the US,” he says.
Whether it be the UK, online or America, the jury is still out as to whether William Hill can reclaim its former glory. The UK market, to which William Hill is particularly exposed, may have bottomed out for now. Online, the company is still blighted by its recent shortcomings but some of the mess of Bowcock’s predecessor has been addressed.
As for the US, William Hill may have to embark on an embarrassing U-turn if the predominant model works – if Americans prefer to place bets with celebrated US brands. William Hill thinks not. It already has first-mover advantage.
Bowcock is supremely confident he has got it right: “To get left behind, you’ve got to be behind. At the moment we are ahead.”